Rights issue is part of a broader strategic plan that may involve listing of its exploration and production arm
Sapura Energy Bhd saw a massive selldown of its shares after the company announced a cash call to raise up to RM4bil to support its future growth strategy.
The stock closed 18 sen down or 30.25% to 41.5 sen, wiping out a total of RM1.1bil in market value.
During the day, the stock had fallen to an intra-day low of 37 sen. A total of 484.1 million shares were traded yesterday.
Cash calls generally don’t sit well with investors, more so if they are going towards debt reduction.
“There’s been a lot of uncertainty surrounding the prospects of the loss-making stock, which has seen some investors selling down their stakes at a loss.
“And now, it is looking to rely on shareholders to pay off its debt,” quips a dealer.
Sapura Energy’s borrowings stand at RM16bil. It is hoping to raise up to RM4bil from the rights issue, which is larger than its current market capitalisation of RM2.5bil.
An analyst notes that the company’s net debt of equity had inched up to 1.61 times in the first quarter ended April 30 from 1.56 times in fourth quarter 2018 as cash dwindled to RM1.4bil from RM1.7bil in the past quarter.
At an analyst briefing, the company said it was looking to de-leverage its gearing ratio to below one time and bring debt down to RM12.648bil from the proposed re-capitalisation.
By reducing its interest cover, the company also hopes to improve its profitability.
The question is, will shareholders, especially the minorities, support the fund-raising?
Yesterday, Sapura Energy said it would raise RM3bil through the rights issue of ordinary shares and RM1bil through the rights issue of Islamic redeemable convertible preference shares.
It said the exercise was part of a broader strategic plan to strengthen its core businesses, boost its financial position and create better value for shareholders.
“In addition to the rights issue exercise, the group is evaluating various options which may involve the listing of its exploration and production (E&P) business and a possible strategic partnership for its drilling business,” the company said in a statement.
The exercise would need shareholders’ approval at an EGM to be called at a later date. Sapura Energy said in the statement that it had secured letters of support from its two major shareholders, Sapura Technology Sdn Bhd and Permodalan Nasional Bhd (PNB), to subscribe to their portion of the rights.
Sapura Technology, with a 15.9% stake, is the family vehicle of Tan Sri Shahril Shamsuddin – the company’s president and group CEO. This means that Sapura Technology would need to fork out some RM300mil for its entitlement.
Recall that Shahril was recently in the spotlight due to his high remuneration package, but it was later disclosed that the company’s debt covenants bind Shahril as staying on as CEO.
While the covenants were new to the market, they were reportedly known to institutional shareholders.
PNB and its funds, meanwhile, collectively hold about 12% in Sapura Energy and have pledged to fully subscribe to their entitlement and could mop up excess shares.
PNB’s backing is seen by some as a signal of government support, especially when interest from other funds such as the Employees Provident Fund (EPF) has been waning. However, some say it could be the way for PNB to average down its cost of investment.
The EPF has been selling its shares since last year and now owns less than 5% from the 11.27% it had in April 2017.
The Retirement Fund Inc or KWAP, meanwhile, owns about 6.85%.
“It is uncertain if these funds or minorities will support the rights issue,” says one analyst.
Sapura Energy recently confirmed that it is seeking a potential listing of its E&P business, which some reckon could happen in six to 12 months, given that oil prices are close to US$70 per barrel.
But with domestic appetite for the listing looking muted, it is reportedly seeking foreign listings in markets like Australia.
On a more positive note, Sapura Energy’s orderbook remains strong at RM16.7bil after having won RM4.5bil worth of new contracts so far this year, including RM1.8bil that was secured recently.
The company, which has been investing to open up new markets, aims to undertake a larger volume of work following its broader strategic plan.
“Sapura Energy is in a strong growth phase today and we are determined to capitalise on the emerging opportunities.
“The rights issue will enable us to strengthen our balance sheet and continue with our growth momentum, which includes bidding for and executing higher-value projects globally,” Shahril said in the statement.
Shahril said the group is actively venturing into a larger addressable market in key regions, including the Middle East, Africa, Latin America, the Caspian and Mediterranean, as well as South-East Asia and Australia.
But for the moment, investors have given its strategic plan and proposed fund-rasing a cool reception.
The company posted a net loss of RM135.7mil in the first quarter financial year 2019 as opposed to a net profit of RM27mil in same period a year ago.
The losses was mainly attributed to continued losses in the drilling division.
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